Resource Allocation Contests: Experimental Evidence

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Abstract

Many resource allocation contests have the property that individuals undertake costly
actions to appropriate a potentially divisible resource. We design an experiment to
compare individuals’ decisions across three resource allocation contests which are
isomorphic under riskneutrality. The results indicate that in aggregate the single-prize
contest generates lower expenditures than either the proportional-prize or the multi-prize
contest. Interestingly, while the aggregate results indicate similar behavior in the
proportional-prize and multi-prize contests, individual level analysis indicates that
the behavior in the single-prize contest is more similar to the behavior in the multi-prize
contest than in the proportional-prize contest. We also elicit preferences toward
risk, ambiguity and losses, and find that while such preferences cannot explain individual
behavior in the proportional-prize contest, preferences with regard to losses are
predictive of behavior in both the single-prize and multiple-prize contests. Therefore,
it appears that loss aversion is correlated with behavior in the single-prize and
multi-prize contests where losses are likely to occur, but not in the proportional-prize
contest where losses are unlikely.

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